Obama Tells Congress Threat of Default Weighing on U.S. Economy
President Barack Obama said the risk of a U.S. default is real and blamed “a few irresponsible members of Congress” for creating a threat that puts the economic recovery at risk.
Obama declined to say whether the government would set priorities to pay holders of U.S. government notes first over paying Social Security recipients or members of the military if Congress refused to raise the federal debt ceiling.
“I’m going to continue to be very hopeful that Congress does not put us in that position,” Obama said today at a White House news conference. “We are exploring all contingencies.”
He repeated that he is willing to negotiate with Republicans only if they agree to reopen the government and raise the nation’s debt ceiling without conditions.
“We can’t afford these manufactured crises every few months,” he said. “We can’t make extortion routine as part of our democracy.”
Obama earlier today called House Speaker John Boehner, an Ohio Republican, to again urge him to allow up-or-down votes on funding the government and raising the $16.7 trillion federal debt limit, without other issues attached.
In Congress, lawmakers are taking tentative steps toward resolving the standoff. Both sides are exploring actions that needed to end the week-old shutdown and raise the debt limit before U.S. borrowing authority lapses Oct. 17.
Senate Democrats will introduce a bill today that would raise the debt ceiling for a year, with a test vote planned for before the end of this week. The measure would need support from at least six Republicans to advance.
There are signals that market concern is building as the stalemate drags on. While the benchmark Standard & Poor’s 500 Index (SPX) has yet to move more than 1 percent on any day since reaching a record on Sept. 18, it’s down 3.74 percent since then. The index slipped 0.8 percent to 1,662.77 at 1:36 p.m. in New York.
The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options prices known as the VIX, jumped 4.6 percent today to 20.32 after a 16 percent surge yesterday.
The Treasury sold $30 billion of one-month bills today at a rate of 0.35 percent, the highest since 2008 and more than double the rate on comparable one-month securities yesterday.
Separately, officials in China and Japan, America’s largest foreign creditors with combined holdings of more than $2.4 trillion in Treasuries, sought to raise pressure on the U.S. to resolve the impasse on the debt ceiling. A shift in asset allocation by China, Japan or other major holders of Treasuries could push up U.S. interest rates and cause swings in global currency markets.